Saturday, April 26, 2014

Gold searching for a fear catalyst

Our theme in recent reports has been the correlation between investor
anxiety and gold demand. For most of the
last 13+ years, gold has benefited from what has been a near-constant climate
of uncertainty. The post 9/11 and post
credit crisis years were indeed bountiful ones for the precious metals. They served to underscore the attractiveness
of gold as a safe haven investment.

Without another fear catalyst, however, gold is unlikely to regain
investors’ attention in a meaningful way.
What the next catalyst might be is anyone’s guess. Whether it takes the form of geopolitical
turmoil, a financial crisis in the emerging markets or an economic slowdown,
the next “black swan” event is exactly what gold needs to blast off into a new
bull market.

The big question of course is when the next fear climate will
emerge. While this is ultimately a
matter of conjecture, the most likely time frame for a flare-up of financial
market tension is the June-September period.
It’s then that the final descent of the long-term deflationary cycle
will be underway. This is the same series
of cycles that was instrumental in galvanizing the 2001-2011 bull market for
gold.

Gold is sensitive to both ends of the economic long wave of
inflation/deflation. It performs best
during the final inflationary portion of the cycle as well as the final
deflationary end of the cycle. These two
ends correspond to approximately the 1970s and the last decade,
respectively. Thus gold has still a
chance of feeding off the last vestiges of the long wave deflationary currents
between now and this fall.